NEED
TO KNOW - MORTGAGE INFORMATION

Jobless figures continue to rise. The national unemployment rate was recently announced at over 10% , which is the highest point in decades. It is expected that the jobless situation in America will only get worse before it gets better. That means millions more of Americans may be facing layoffs.

If you work in a company that is hinting at possible layoffs to get them through bad financial times, or you are just worried about losing your job, what can you do now to plan for possible income loss and mortgage payment issues?

Saving

You should always have a savings account with at least three to six months of living expenses. That means if you were to become unemployed, you have enough money to make your mortgage payment and pay other expenses while you look for another job. If you do not have a secure savings in place, start one or add to your current base with as much as you can afford each month.

Mortgage Insurance

Many homeowners have mortgage insurance with an FHA backed home. Each month, they pay additional amounts above the principal, interest, taxes, and home insurance (PITI) into a Private Mortgage Insurance (PMI) that protects the lender in case you default on a mortgage. This does not help you keep your home, however. It merely protects the financial risk that your lender takes for providing you a mortgage. They get their money, but you are still obligated to abide by the terms of your mortgage.

In contrast, you can buy mortgage insurance that will help you should you face financial hardship. You want to look for an insurance policy that will help pay some or all of your mortgage if you lose your job or become disabled. While the costs of this insurance can be high, it is better than foreclosure.

Layoff Insurance

Groups in some states are now offering “layoff insurance,” which is job-loss mortgage insurance for those who buy the policy and pay the premium. This form of insurance may be expensive, but can be a home-saver in a financial crunch if you are ever laid off from your job. Usually you must pay premiums for a minimum of about 6 to 12 months before you are eligible to file for a claim. Other restrictions may be in place, such as a monthly cap to what the company will pay on your mortgage, restrictions on paying principal and interest only (and not your property tax escrow), and limits to how long they will make your mortgage payment.

However, this “insurance” is not offered by actual insurance companies regulated by federal and state insurance commissions. Groups that offer this may be more like clubs and may not have any actual financial reserves in place to pay claims. If you are interested in this type of mortgage protection, research the group carefully to be sure they have a solid financial backing to pay claims.

Financial times are hard for millions of Americans. If you may be facing unemployment and are worried about losing your home, start planning today for a strategy to keep your home while searching for another job.

This article is intended for general information. Always seek sound financial and legal advice before making any financial decision.